What Is a Conforming Loan?
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Denny Ceizyk has been a senior writer covering LendingTree’s mortgage content since 2019; he has covered the mortgage industry since 2007. Besides writing home loan articles for LendingTree, Denny contributes expert commentary for national publications including MarketWatch, the New York Post, AARP, Realtor.com and Money magazine.
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A conforming loan is a mortgage that meets — or “conforms” — to criteria set by two large companies that provide funds for most of the mortgages made in the U.S. — Fannie Mae and Freddie Mac. Conforming loans are the most popular type of mortgage because they are typically cheaper than other types of mortgages, and borrowers can access bigger loan amounts than most government-backed loans allow.
Conforming loans: What are they?
A conforming loan is a mortgage that meets two criteria:
- The loan amount must be at or below the conforming loan limits set by the Federal Housing Finance Finance (FHFA) each year.
- The borrower’s credit profile and the property must meet guidelines set by Fannie Mae and Freddie Mac for approval and funding.
The Federal National Mortgage Association and Federal Home Loan Mortgage Corporation — Fannie Mae and Freddie Mac for short — are government-sponsored agencies that buy, package and sell mortgages originated by mortgage companies as securities so consumers can buy and refinance homes. They also make the rules lenders follow when they consider your loan application for approval.
The Federal Housing Finance Agency (FHFA) is a government agency that oversees Fannie Mae and Freddie Mac to make sure they’re making safe and sound lending decisions. The FHFA also tracks average U.S. home values, and makes adjustments to the conforming loan limits each year to give borrowers access to enough money to buy homes at current prices.
What are conforming loan limits?
Conforming limits represent the maximum dollar amount FHFA guidelines allow you to borrow for a residential mortgage each year based on the median home value in each U.S. county and varies depending on the property’s location.
The 2023 conforming loan limit for one-unit properties in most of the U.S. is $726,200, but can go up to just over a million — $1,089,300 — in high-cost areas.
Conforming loan limits for 2023
| Number of units | Most of the continental U.S. and Puerto Rico | Alaska, Guam, Hawaii and the U.S. Virgin Islands |
|---|---|---|
| 1 | $726,200 | $1,089,300 |
| 2 | $929,850 | $1,394,775 |
| 3 | $1,123,900 | $1,685,850 |
| 4 | $1,396,800 | $2,095,200 |
Exceptions: Conforming loan limits for high-cost areas
Some parts of the U.S. are actually allowed to have a higher loan limit than the rest of the continental U.S and Puerto Rico. In areas the FHFA deems to be “high cost” based on an area’s median home values, the top limit for a single-family home is $1,089,300 instead of $726,200. Areas in the continental U.S. that qualify for this special, higher limit include San Francisco, New York and Washington, D.C. Look up your county’s limit on the FHFA’s interactive map or on our map below.
2023 conforming loan limits by county
Conforming loan limits vs. FHA loan limits
FHA loan limits are set at 65% of the current conforming loan limit, which is a lower loan amount than you could get with a conforming loan. For a single-family home in most parts of the U.S., the maximum FHA loan amount is $472,030 — which is $254,170 less than the $726,200 conforming loan limit.
Conforming loan benefits
Lower mortgage insurance costs If you can’t come up with a 20% down payment on most standard home loans, you’ll only have to pay one type of mortgage insurance, called private mortgage insurance (PMI). Once you reach 20% equity in your home, you can get rid of your private mortgage insurance on a conforming loan.
Government-backed loans insured by the Federal Housing Administration (FHA) and the U.S. Department of Agriculture (USDA) require both an upfront and an annual insurance premiums, regardless of your down payment. In most cases, you can’t remove FHA mortgage insurance or USDA guarantee fees unless you refinance to a conventional conforming loan.
LOWER APRS Although interest rates tend to be higher than those offered on government home loans, the lower cost of mortgage insurance often makes your annual percentage rate (APR) — which reflects the total cost of your mortgage over the life of the loan — lower on a conventional conforming loan.
MORE OCCUPANCY OPTIONS Unlike FHA, VA and USDA loans, conforming loans aren’t restricted to primary residences; they’re also available for investment properties, vacation homes and second homes
LESS FORMS TO COMPLETE Because conventional conforming loans aren’t backed by a government agency, there’s less government red tape to cut through for approval. You’ll still receive a Loan Estimate and Closing Disclosure form to review your closing costs and fees at the beginning and end of the mortgage process.
HIGHER LOAN LIMITS A conventional loan allows you to get a larger mortgage compared to FHA loans.
POTENTIAL APPRAISAL WAIVERS You may be able to skip the cost and time involved in getting a home appraisal if you qualify for an appraisal waiver, even if you’re buying a home. That perk isn’t available on government purchase mortgage programs.
Conforming loan drawbacks
HIGHER CREDIT SCORE REQUIREMENTS Conforming loans require a minimum credit score of 620. That’s 120 points higher than the 500 minimum credit score required for an FHA loan. In addition, to qualify for the best mortgage rates with a conforming loan, you’ll need to have a credit score of 780 or higher — that’s 40 points higher than the previous 740 standard.
HIGHER RATES loan rates are usually higher than government-backed mortgages. However, lower mortgage insurance costs often make your APR lower, saving you money in the long run compared to an FHA, VA or USDA loan.
Conforming vs. conventional loans
The terms “conforming loan” and “conventional loan” are often used interchangeably because they overlap. But, they are not the same things. Conforming loans are always conventional loans, but conventional loans can be both conforming and nonconforming loans.
In other words, a conforming loan is one type of conventional loan, but conventional loans is a much broader term that includes any mortgage that isn’t backed by a government agency. Conforming loans have to meet loan limits set by the FHFA and guidelines set by Fannie Mae and Freddie Mac, while other types of conventional loans do not.
What is a nonconforming loan?Nonconforming loans are mortgages that don’t meet or “conform” to loan guidelines set by Fannie Mae and Freddie Mac and the FHFA. Instead, guidelines and qualifying rules are set by investors. Some examples of common nonconforming loans include:JUMBO LOANS
The word “jumbo” refers to loan amounts above the maximum conforming loan limits. They are often a good choice for financing luxury houses or homes in high-cost-of-living areas.
NON-QM LOANS
Borrowers looking for niche products that fit their unique needs may also consider nonconforming products such as nonqualified mortgages, that provide financing for borrowers with income, credit or properties that don’t meet conforming, conventional or government-backed loan standards. Look out for risky features like interest-only payments that may keep your payment low, but don’t reduce your balance.
The fact that a loan is nonconforming doesn’t necessarily mean that it’s a bad or predatory loan. It just means that the borrower has fewer built-in protections and may be taking on a loan with higher risk.
GOVERNMENT-BACKED LOANS
Loans backed by the Department of Veterans Affairs (VA), FHA and USDA are technically nonconforming loans, but they still require that you qualify based on income, credit, down payment and property standards. However, the guidelines are often more flexible than conforming conventional loans, and are popular with credit-challenged first-time homebuyers.
How to qualify for a conforming loan: conventional loan requirements
| Minimum down payment | 3% |
| Minimum credit score | 620 |
| Mortgage insurance | Required until you reach 20% equity |
| Maximum debt-to income (DTI) ratio | 45% back-end ratio* |
| Maximum loan-to-value (LTV) | 97% |
| Loan limit (single-family) | $726,200 |
*Higher DTI ratio exceptions may be made for borrowers with cash reserves, residual income or high credit scores.
Jumbo loans vs. conventional loans
Jumbo loans are a type of nonconforming mortgage that exceeds the maximum loan amount allowed by FHFA guidelines. They may have higher interest rates and fees. A jumbo mortgage typically requires:
- A higher down payment, usually 20% or more
- A high credit score — 700 or higher
- A low DTI ratio — 45% or lower
- At least several months of cash reserves
Jumbo loans allow homebuyers to borrow more money but usually at a higher price.